Last Year, Salaried Workers' Tax Burden Increased... Health Insurance Fees and Other Quasi-Taxes Up

Tax Gap for Single Unmarried Households Rises 0.23%P to 23.6% Year-on-Year... Gap with OECD Narrows
Average Wage 100%, Two-Child Single-Income Households Increase by 1.03%P

[Asia Economy Sejong=Reporter Kwon Haeyoung] Last year, the real tax burden on wage earners in South Korea increased. This was due to the rise in income tax and the expanded burden of quasi-taxes such as health insurance premiums. This contrasts with the trend among wage earners in OECD member countries, where the tax burden has been decreasing during the same period. The government plans to announce a 'tax reform plan' on the 21st, aiming to reduce income tax by adjusting the income tax brackets, thereby alleviating the tax burden on low-income and middle-class households.

According to the 'National Finance July Issue' released on the 20th by the Korea Fiscal Information Service, an analysis of an OECD report showed that last year, the 'tax wedge' for a single-person household earning 100% of the average wage increased by 0.23 percentage points from the previous year to 23.6%. The OECD average during the same period decreased by 0.06 percentage points to 34.6%.

The tax wedge represents the proportion of pre-tax annual salary taken up by income tax, social security contributions such as national pension, health insurance, and employment insurance premiums. It is an indicator showing the actual tax burden; the larger the tax wedge, the greater the tax burden.

For a single-person household earning 167% of the average wage, the tax wedge rose by 0.39 percentage points compared to a year earlier. For a single-earner household with two children earning 100% of the average wage, the tax wedge increased by 1.03 percentage points, and for a dual-earner household with two children where both spouses earn 100% of the average wage, it rose by 0.63 percentage points. This indicates an increased burden of income tax, national pension, and health insurance premiums. This contrasts with the OECD average tax wedge, which decreased by 0.01 percentage points, 0.42 percentage points, and 0.31 percentage points respectively during the same period.

Among the 38 OECD member countries, South Korea ranks 33rd in tax wedge for single-person households, indicating a relatively low tax burden. There are calls to increase the tax wedge to respond to aging and rising welfare demands, and in fact, the tax wedge has been steadily rising. While the OECD average tax wedge decreased from 36.4% in 2015 to 36.1% in 2018 and 34.6% in 2021, South Korea's tax wedge steadily increased from 22.0% in 2015 to 23.0% in 2018 and 23.6% in 2021. The gap in tax wedge between South Korea and the OECD also narrowed from 14.4 percentage points in 2015 to 11.0 percentage points in 2021.

The rise in South Korea's tax wedge last year is attributed to increased income tax and higher social security contributions from employers and employees. In particular, the proportion of health insurance premiums relative to pre-tax salary rose from 3.68% in 2020 to 3.83% in 2021, an increase of 0.15 percentage points. Two-thirds of the tax wedge increase (0.23 percentage points) last year was due to the increased burden of health insurance premiums.

Kim Yeonmin, a researcher at the Fiscal Information Analysis Division of the Korea Fiscal Information Service, explained, "As the COVID-19 situation gradually improved, government support measures were eased and wage income rose due to inflation. Accordingly, especially for dual-earner households, support payments decreased while income tax and social security contributions increased, leading to the rise in the tax wedge."

This content was produced with the assistance of AI translation services.